You’re going to feel a little “pressure” – Audit Pain Mistatements (Taxcloud)

Ever heard that little white lie at the dentist or doctor’s office?  That’s their euphemism for extreme pain.  When a doctor uses that phrase, you know it’s going to hurt soon.

I now have a new equivalent:  “post-modernization audit.”

Fedtax/Taxcloud is at it again, spouting absolute nonsense regarding the risks and pains of an audit in discussion comments.  Kevin Hickey had written a piece about classification issues they had in an audit in their home state of Pennsylvania.  It was brutal, time consuming and ended up leading to a $25,000 fine due to confusing interpretations and classification issues.

TaxCloud chimed in:  “Ultimately, the situation described is a business affected by historic laws, not laws envisioned and enabled by the proposed federal legislation. Indeed, resolution of the writer’s concerns are the exact purpose of the bill.”

Which of course, is nonsense, and diregards completely the reality of his story and our legitimate concerns if the Marketplace Fairness Act passes.

The MFA is the CAUSE of the increased audit risk for a smaller business and are absolutely not the exact purpose of the bill.  How does letting 45 more states audit you make things better? A 4500% increase in audits and more importantly, the liability of audits is the worst part of the Marketplace Fairness Act. To say the purpose of the bill is to resolve this is Orwellian double-speak, just like the name of the bill.

Then, the funnier/worse part.  “thus in no way possible an accurate description of a post-modernization audit.”

Ahh.. See somehow audits will get better in the future if The Marketplace Fairness Act passes.  And we’ll be flying jet packs in the future too.

Auditors behavior will not change.  Items will still need to be poured over, invoices, tax returns, the whole shebang.    Except that you can be audited by 45 more states instead of 1.  A fatal flaw in the MFA and one that is not fixable.

And with all due respect to TaxCloud, how would they know?

  • Taxcloud has only been around for a few years
  • Taxcloud has a fairly small number of clients
  • Their experience is hardly a large enough sample size to really understand audit risks if MFA passes
  • Followup beyond any initial data a CSP could provide wouldn’t be in their understanding

Comments

  1. TaxCloud is one of fewer than 30 solutions available for 287 different needed web store solutions. Not only does tax cloud ignore how much work, how time intensive, and how expensive it would be to code merchandise to over 13,000 different sales tax districts (as Sylvia Dion has pointed out – we’re quoting a number less than the 13,000 that’s incorrect). Only mistakes made by the software company are protected against audits – the likely mistakes that would even by an experienced CPA because of the coding process are ignored – they would not be protected. Smaller businesses could expect a large number of audits.

    David Campbell argues his points hard because he is CEO of a company that stands to make much money, of course. eMainStreet.com argues its points because the organization agrees with the AAA-CPA and almost all other CPAs that the MFA would destroy smaller online businesses. http://www.floridasalestax.com/documents/AAA-CPA-Position-Letter-Against-Marketplace-Fairness-Act.pdf
    The complexities inherent in dealing with the software and related auditing are two important, legitimate concerns.

  2. David’s comment in that atrticle is flawed in so many ways. First, SSUTA has done little, if nothing to simplify the tax process.
    Second, MFA exempts software error, not user error.
    Take the IT programmer who’s job it is to classify what tax class an item of clothing is. There is a tax class of ordinary clothing, another for workplace (safety) clothing, and another for luxury items, such as a fur coat. In one State, all clothing is considered taxable and share the same rate. In other States, some clothing items are taxed, and others are tax exempt.
    So the IT person (office worker) places the fur coat in a class of common clothing. Software error? Nope .. user error, and under the scrutiny of an audit, would that mistake be forgiven as a software error? How can it be? The software worked as it should, The user programming the item may have made a mistake, or may have also been committing fraud.

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